Lixia Li: Trading the S&P intuitively

During that time she became a Chartered Financial Analyst (CFA) and took an interest in the futures markets in general and the S&P 500 in particular. She found the S&P trended well and was easy for her to follow. “In commodities there are supply and demand issues I can't grasp and the players are smarter than I am so I can't compete with them. I have chosen to focus solely on S&Ps, which gives me a competitive advantage over others that get distracted by focusing on too many other markets.”

Li looks at numerous technical indicators but in the end uses discretion on all her trades. “I am an intuitive trader by nature,” Li says. “I just have a feeling about the market. I tend to focus between one-minute bar charts and 60-minute charts. When I see on the one-minute price chart that the market is going to change direction, I either go long or short depending on which way the market turns,” she says. Looking for opportunities in reversals is an element to her trading style.

She says she’s tried looking at different time price charts for confirmation, but that didn’t work for her. “It was information overload.”

She tried trading other markets; including crude oil, bond futures, the euro and Nikkei futures, but found that took her attention away from the S&P. “My results in the S&P speak for themselves,” she says. Her Strategic Index fund, which has been trading since July 2002, returned 17.15% its first six months followed by 38.96% in 2003. The fund continued with positive results each year after that: 6.55% in 2004 and 13.87% in 2005.

Li defines herself as a high-volume, short-term technical trader who seeks to exploit perceived market inefficiencies through both long and short positions. The time she holds a position ranges from a few minutes up to one day. She rarely holds positions overnight.

She trades mostly on price and volume and uses simple indicators, including advance/decline, Trin, tick volume and the Vix, to look for hints that market will turn and to formulate her trading decisions. “Cutting losses to a smaller percentage of capital and maximizing profits is the most dynamic portion of the program and is continually being adjusted.”

It took trial and error to get to where she is today. In March 2000, Li opened her first trading account with $12,000. “In less than three weeks I had lost the entire value of the account,” Li says. “I worked hard to gather more information and research about the markets and trading and then re-capitalized the account. By the end of 2000, I had made back the loss and realized that I can trade well. Then in 2002 I opened another trading account with about $50,000 and have never looked back.”

She says if you’re determined to succeed and work hard and research the markets, you will succeed. Li currently has a little less than $2 million nominal assets under management. Li says she was highly influenced by trading veteran Linda Bradford Raschke. “Her trading style really clicked with me and she is always so positive,” Li says.

Li’s program took a hit when the S&Ps plunged 3.5% on Feb. 27, but she has recouped those losses and learned a valuable lesson. “I had a tough day when the market dropped in late February 2007 like most traders did. I lost focus and learned a lesson very quickly: take losses sooner than later when the market is not going your way,” she says.

“This was just one more challenge that I had in front of me. March and April of this year have been great months for my program and I have recovered almost the entire amount of the drawdown.”

She says her risk management has evolved and improved through the years. “Even though my 2004 percentage return was not as high as 2003, I feel like [the program was] getting better and will continue to produce steady results rather than just putting up big numbers.”

“The most important thing is I have no ego. If I’m wrong, so what?” she says, adding, “You can trade profitably year after year and I am fortunate to have found the knowledge to trade and I have the drive that is necessary to succeed in the trading business.”